MARK COLVIN: The dairy company Bega Cheese has made a huge offer for its rival company Warrnambool Cheese and Butter.

If the $319 million takeover bid got shareholder approval it would make it one of the country's biggest publicly traded food companies.

It's a move many in the dairy industry wonder didn't happen sooner.

Will Ockenden reports.

WILL OCKENDEN: The company which is now known as Bega Cheese began its days as small butter factory in 1900.

One-hundred-and-thirteen-years later, it's making a play for the country's oldest dairy producer, Warrnambool Cheese and Butter, which has been around since 1888.

Barry Irvin is the executive chairman of Bega Cheese.

BARRY IRVIN: If you have a look at the profile of them combined, it'd be seven integrated dairy factories, $1.5 billion worth of revenue with 1.6 billion litres of milk. So it would truly be a very globally competitive and very globally relevant dairy company.

WILL OCKENDEN: The offer values each Warrnambool share at $5.78, about 30 per cent more than yesterday's closing price.

But today, Warrnambool's share price soared after the stock market was informed of the takeover proposal.

Barry Irvin says it's a good offer for shareholders and farmers.

BARRY IRVIN: A large number of the shareholders that are also suppliers so, and as I said we think this is a very good offer from that perspective. My broader perspective and the broader strategy is one of creating more value in the dairy supply chain. So, creating more valuable dairy product, accessing customers that we can build value for; that flows through to stronger milk prices on the farm.

WILL OCKENDEN: What do you make of the argument that though consolidation obviously means fewer companies, fewer choice for dairy farmers to go to, and then ultimately that means that their ability to choose a higher supplier or a higher price is it taken away from them?

BARRY IRVIN: Look this… this, this particular offer will still I think see a very competitive, and I'm a great advocate for competition, very competitive Australian dairy industry.

PAUL JENZ: It's a logical thing to happen.

WILL OCKENDEN: Paul Jensz is an analyst from Phillip Capital. He's spent many years watching the agricultural sector, and says the industry was always expected to consolidate.

PAUL JENZ: Dairy farmers are concerned about two things, front of mind obviously milk prices very important for them, but they also want to have certainty around their company being able to make a lot of money from that milk that they supply. What this does certainly is give the ability of this larger company to squeeze more value out of each litre of milk.

Dairy supposedly a little concerned that there is one less competitor in there buying the milk. And I think on balance they get a better deal with this because I think this larger group can make more money from the milk. They have good standings in the dairy community, so they should be able to pay a very competitive milk price as well.

WILL OCKENDEN: A couple of years ago, dairy co-operative and competitor Murray Goulburn also attempted a takeover of Warrnambool Cheese and Butter, but it eventually fell through.

However, the co-operative held onto its sizable shareholding in Warrnambool, and has continued to increase its strategic stake to about 16 per cent over the last few years.

That gives Murray Goulburn powers over the Bega/Warrnambool deal going ahead. But today the company told shareholders it too was reviewing the proposal.

And dairy farmers are also wondering what any deal may mean for their rapidly changing industry.

Noel Campbell is the president of farmer group Australian Dairy Farmers.

NOEL CAMPBELL: I don't think it creates any problems with competition, there's still a number of strong players in Western Victoria. Probably a natural progression for these organisations to move together if that's what they want to do.

WILL OCKENDEN: Is it a good thing for the dairy industry?

NOEL CAMPBELL: Consolidation generally I think is probably something we would expect. Bega was successful in something with Warrnambool would probably mean that they have greater spread as far as geographical spread, which take some of the risk out of the companies.

WILL OCKENDEN: In a statement to the market, Warrnambool Cheese and Butter advised its shareholders to do nothing until the board can look at the offer before finally making a recommendation.